PALM BEACH GARDENS, Fla. — Fee transparency, the driver behind numerous ongoing 401(k) plan lawsuits, will place highly on the retirement agenda of the new Democratic Congress, said James Delaplane, a partner at Washington law firm, Davis & Harman LLP.
Mr. Delaplane was speaking at Pensions & Investments' Defined Contribution Conference Feb. 11-13 in Palm Beach Gardens, Fla.
Along with investment fee scrutiny, target-date funds and default options took center stage at P&I's annual conference."401(k) fee scrutiny will continue to play an important role. Congress is paying attention to the recent litigation about revenue-sharing fees and reports in the press," Mr. Delaplane said during his Feb. 12 keynote address.
Hearings in Congress, led by the House Education and Labor Committee, will focus on fee disclosure practices, revenue-sharing and "free" record keeping, plan sponsor compliance with fiduciary responsibilities, and annuity fees.
Also, the landscape for continued retirement reform will be altered because the key players for retirement reform have changed, with Rep. George Miller, D-Calif., now chairing the House Education and Labor Committee and Sen. Max Baucus, D-Mont., chairing the Senate Finance Committee, Mr. Delaplane said.
On target-date funds, Richard Davies, senior managing director and head of defined contribution services at AllianceBernstein Investments Inc., New York, said offering proprietary funds gives investors "a global multi-asset, multi-style capability and avoids the conflict of how the manager of managers gets paid."
Money managers that offer proprietary investments in target-date funds are in the majority, said Mr. Davies. In addition to AllianceBernstein, they include JPMorgan Asset Management; Barclays Global Investors; T. Rowe Price Associates; Principal Financial Group; Fidelity Investments; Vanguard Group and American Century Investments.
However, John Sturiale, field vice president at Charles Schwab Retirement Plan Services, San Francisco, said non-proprietary fund structures can reduce fiduciary risk and avoid the potential bias against less expensive in-house mutual funds.
Schwab as well as Russell Investment Group, offer non-proprietary target-date investments.
"Termination (of money managers) for underperformance and style drift is another advantage" of using non-proprietary funds, said Mr. Sturiale, adding that plans don't have to deal with the political implications of terminating a manager.
The popularity of customized target-date funds for 401(k) plans also was a hot conference top. Such funds are attractive to plan officials because they take their participants' demographics and the company stock into account, said Stacy Schaus, senior vice president and defined contribution strategist for Pacific Investment Management Co., Newport Beach, Calif.
According to a PIMCO survey, 91% of consultants provide custom target consulting and 58% create the glide path, which decreases the equity allocation as participants age, said Ms. Schaus.
In a conference session, "What is the Appropriate Qualified Default Investment Alternative?" defined contribution plan executives said their plans recently implemented target-date funds and managed accounts as their default option while they await final Department of Labor regulations on defaults.
Raymond Brusca, vice president of benefits at Black & Decker Corp., Towson, Md., said the $467 million plan is switching to target-date funds from a balanced fund as the default option.
"It will ease investment election decisions. We also considered managed accounts, but we're not big proponents of it. We think target-date funds will complement our 26 core funds nicely," said Mr. Brusca.
At DaimlerChrysler Corp., Cindy Cattin, senior manager of asset management at the Auburn Hills, Mich.-based automaker, said plan executives opted for managed accounts as the default option in the company's $6 billion 401(k) plan.
"It's a great way to help participants stay diversified. But they do have the option to opt out," she said.